(Corrects Greenbrier executive estimate of tank car capacity to
30,300 gallons, not 33,000 gallons. Also corrects impact of new
tank car design weight in paragraph 23.)
By Patrick Rucker
WASHINGTON, July 18 North Dakota's Bakken oil
patch has thrived thanks in large part to the once-niche
business of hauling fuel on U.S. rail tracks. New safety rules
may now test the oil train model.
Within weeks, the Obama Administration is due to unveil a
suite of reforms that will rewrite standards conceived long
before the rise of the shale oil renaissance, at a time when
crude rarely moved by rail and few Americans had ever seen the
mile-long oil trains that now crisscross the nation.
Taken separately, the changes appear incremental - a
question of a fraction of an inch of steel in tank cars, a few
miles an hour of speed or rerouting trains; stripping explosive
gases out of the oil would be costly but not complex.
But refiners, oil producers, traders and even railroads have
become so reliant on such shipments that the reforms, taken
together, could upend a practice that has bolstered bottom lines
across a wide swathe of industrial America. It may also
complicate shipments of one-tenth of U.S. crude to refineries.
Executives have met formally with regulators and the White
House more than a dozen times this year, often to resist
anticipated reforms or propose alternatives - typically ones
that put the onus on a different industry.
Regulators have so far withheld specifics of their rule
proposals, but interviews with industry executives and a review
of presentations reveal at least four major areas of concern.
An apparent agreement this week between railroads and oil
drillers over new tank car standards may offer a way forward on
one of the most contentious issues, one that has vexed
regulators since a runaway train derailed and exploded in the
Quebec town of Lac Megantic last July, killing 47 people.
Other elements are far from resolved, however. Industry
officials are ramping up their rhetoric, beseeching the White
House to drop measures that they say would cripple their
business and only marginally improve safety.
How regulators balance public safety concerns with
commercial imperatives will shape the industry for years.
"If it were not for Bakken rail deliveries, five or six
refineries on the East Coast would be shut," Charles Drevna,
president of the American Fuel & Petrochemical Manufacturers, an
industry trade group, said of the stakes.
"Safety improvements are needed but that can be done without
destroying the business."
The White House Office of Information and Regulatory Affairs
is shepherding the regulation and officials have promised to
present new standards by the end of the month.
TAPPING THE BRAKES OR ZAPPING THE GAS?
For the rail industry, the issue is speed. Executives fear
that officials might limit oil trains to 30 miles per hour (48
kph)- tapping the brakes on the current 40 mph limit the
industry agreed early this year.
"I would hope, as we look at this with the federal
government, we could show them the modeling of how disastrous
that could be to the entire fluidity of the U.S. rail system,"
CSX Corp Chief Executive Michael Ward told investors
Passenger service on a major artery between Aurora, Illinois
and Spokane, Washington, will be delayed 2.2 hours and freight
along that 1,800-mile (2,900-km) route will be waylaid for more
than six hours under such speed controls, according to a BNSF
Railway Co presentation to White House officials
earlier this month.
That stretch of track would need roughly $800 million in
years-long improvements to erase the disruption with knock-on
effects along the route, the company has told regulators.
A 30 mph limit would spark a lobbying blitz from leaders of
the farm, auto and passenger rail sectors that would be
impacted, said Ed Hamberger of the Association of American
"We have to let our customers know the costs - which would
be huge," he said.
Producers and shippers are also anxious about whether
regulators will try to impose a rule that Bakken producers must
'de-gas' some or all of the Bakken crude they ship in railcars,
requiring the light-ends to be stripped out in facilities that
would add to field expenses.
Few such facilities currently exist in the Bakken, making
such demands impractical at the moment, but North Dakota
operators like Continental Resources Inc point to
self-funded studies of crude from the region to argue it is safe
and does not need special handling.
A THICKER CAR
For oil companies, tank car design is the big concern since
they fear a model that maximizes safety could shrink delivery
size. Tank cars have a weight limit of 286,000 pounds (130
tonnes) on the tracks and every pound of steel meant to mitigate
accidents limits the amount of crude oil it can carry.
Rail operators and tank car manufacturers want a shell
9/16th inch (14.3 mm) thick, while the oil industry says the
7/16th inch (11.1 mm) thickness in the current model tank car is
That 1/8th inch of steel and other safety upgrades adds
about 7,850 pounds of bulk, manufacturers say, and so could
shrink each delivery by nearly 3 percent without other
Early this week, industry sources said American Petroleum
Institute and AAR had agreed to a half-inch thick tanker design
and a schedule to retire older, DOT-111 tank cars.
The trade groups, though, were staying quiet about the
proposal and it had not won broad backing within the oil train
But Bill Furman, chief executive of tank car manufacturer
Greenbrier Co Inc, says additional weight in one element
of the car can be subtracted elsewhere due to design advances.
"I don't get this capacity argument," he told analysts
recently. "The basic car that is safe for use... will be about
30,300 gallons - exactly what we've been running in the industry
With municipal and state authorities demanding attention to
safety and regulators expected to respond, there is little doubt
that costs will be coming in one form or another.
Fuel-laden freight trains cross commuter tracks as many as
20 times a day in the Chicago suburb of Barrington, Mayor Karen
Darch estimates, and disaster is easy to imagine.
"One error or an operational mistake could turn our town
into Lac Megantic," she said.
(Additional reporting by Susan Taylor and Solarina Ho in
Toronto and Rohit T.K. in Bakgalore; Editing by Marguerita Choy)